Solar Power to the People

There’s a popular revolt sweeping the country – and Hawaii is leading the way.

Ostensibly the revolution is about an issue so banal it makes some people’s eyes glaze over: how we generate electricity. But in reality it’s about something much more profound – it’s about ordinary people challenging entrenched elites. It is, pardon the pun, a power struggle.

The battleground is photovoltaics. Ten percent of Hawaiian Electric’s customers have declared independence and are now generating their own electricity with PV panels installed on their rooftops. On Oahu alone, in 2012, nearly 17,000 customers switched to rooftop solar. The Hawaiian Electric companies (HECO, MECO and the aptly named HELCO) fear that if they continue to lose sales at this rate, their regulated monopoly with its state-guaranteed profits will erode and their 120 year-old business model will collapse.

The model is simple: generate electrons in dirty old gas-guzzling power plants and send those electrons down a rickety old electric grid to captive customers who have no alternative but to pay the exorbitant price the monopoly charges them. Between 2009 and 2012, electric rates in Hawaii rose by 50 percent. Most ratepayers had no option but to pay through the nose.

This business model has been highly successful. The CEO of Hawaiian Electric earned close to $6 million in 2012. Between them, the top five executives were paid nearly $14 million. Meanwhile stockholders were rewarded with a healthy annual dividend of 5 percent. Hawaiian Electric’s corporate heft and wealth ensure that it has ready access to top officials. The Public Utilities Commission has typically guaranteed the utility a profit of around 10 percent.

So the fact that close to 40,000 households across the state have revolted — and taken the bold step of forking out their hard-earned savings to invest in a relatively new technology anchored to their rooftops — does not sit well with Hawaiian Electric.

In an effort to halt the expansion of residential PV systems, HECO has resorted to claiming that too much rooftop solar is dangerous. They say that at the point where, in any given neighborhood, more electricity is being produced than is being consumed, electricity will flow backwards into the grid, blowing up transformers and sparking Armageddon.

There are two problems with this argument.

First, the HECO companies keep changing their definition of what constitutes a safe amount of rooftop solar. At one point it was 50 percent of peak load, then it was 75 percent, then it was 100 percent, now they say they can accept 120 percent. So it looks like they are plucking these safety-limit numbers out of their okoles.

Besides, the inverters installed as part of solar systems are designed to respond to any of the unsafe power conditions the utility claims it fears by shutting down long before any problems arise. Indeed, no such occurrence has been reported anywhere in the state.

The second problem with the safety argument is that not a single expert disputes that if Hawaiian Electric invested in a modern grid, by installing storage systems and mechanisms to detect shifting loads and power generation — which could rapidly switch equipment on and off according to need — they could readily handle a lot more rooftop solar.

So, recently, HECO has started to trot out a different argument: social equity. They say that the people who have installed rooftop solar are relatively affluent and that most are still connected to the grid and depend on it at night when their panels aren’t generating power — and, because these “affluent” solar owners no longer buy more electricity from the utility than they generate and sell back to it, they are not contributing their share of revenue to maintain the grid. So, weeping crocodile tears, HECO claims that the burden of paying for maintenance of the grid is shifting increasingly to those who don’t have rooftop solar, who tend to be less affluent.

This argument is a bit rich — not least because it’s coming from multi-millionaire executives. More to the point: no-money-down leases have now made solar accessible to all homeowners, regardless of income. Even more significantly, last year the Legislature passed an on-bill financing mechanism, which allows all ratepayers — students, old folks, renters — to borrow at incredibly low rates to put PV systems on their rooftops and repay the investment with a monthly tariff on their electric bill. Not surprisingly Hawaiian Electric has been resisting implementation of the program and the PUC doesn’t like it either.

In fact, in September, HECO effectively shut down new installations of rooftop solar across large swaths of Oahu. This unannounced move, made without consultation with the Public Utilities Commission sent the burgeoning rooftop solar industry, the fastest growing industry in Hawaii in the last three years, into a tailspin. The victims are not just the solar PV companies and their employees.

The benefits of PV are pretty impressive. Solar households will probably obviate the need for $100 million in oil imports this year. Instead of padding the bottom line of overseas oil corporations, that money will stay in the local economy, generating local jobs — indeed thousands of local men and women, electricians and accountants, carpenters and CAD technicians, roofers and salespeople, worked in the PV industry statewide, prior to HECO’s ongoing sustained effort to block new system interconnections. In fact in September, there were almost certainly more people working in the industry than employed by HECO.

There’s also the fact that rooftop solar customers generate excess power, which flows to their non-solar neighbors — and HECO charges those non-solar customers for that power which it paid nothing to generate!

Finally, of course, solar systems help reduce emissions of the heat trapping gasses which are causing sea levels to rise and flood our beaches.

Hawaiian Electric acknowledges none of this. But, even if you accept HECO’s skewed numbers on the cost of solar, it amounts to about 7 cents a day for the average non-solar customer. HECO wants us to be outraged about this while every year they continue spending $1.5 billion on oil — the single dumbest energy source for electric power generation, which costs an average 30 times as much per KWH as solar.

So if the issue isn’t safety and it isn’t cost, what is it?

The issue is that Hawaiian Electric wants to protect its monopoly. It wants to revert to the comfortable old model where the utility generates the power and sends it in one direction — to the customer. Quite simply, they are terrified of the threat that low-cost, self-produced electricity poses to their business model.

HECO claims to be moving into the 21st century by changing the way it generates power: by building industrial-scale solar power plants and by converting old oil and coal-burning plants to burn bio-fuels and “cleaner” liquid natural gas instead. But in this scenario they would still control the power, both literally and figuratively, and continue to set the price.

The public isn’t buying it. Opinion polls show that rooftop solar power is more popular than mom and apple pie. Nine out 10 people in the state think that families and businesses should be encouraged to install rooftop solar.

The problem for HECO and the powers-that-be is that they cannot put a finger in the dyke and hold back the tide of people who want to harness the sun and generate their own power. If Hawaiian Electric continues to resist, people will chose to go off the grid altogether. Battery technology is improving fast and the cost is plummeting. According to a study released last month by the Rocky Mountain Institute (RMI), “Due to the high retail electricity prices in Hawaii, a solar-plus-battery-only system (i.e., without diesel generator) becomes competitive with retail electricity in 2015.”

That’s right: next year it will be more cost effective for the average HECO commercial customer to invest in PV and batteries than to continue buying their juice from the three stooges, HECO, MECO and HELCO. The break-even point for residential customers is not far behind.

This is where Hawaii leads the national revolt. According to the RMI, the cost of a “utility in a box” residential PV plus battery system will achieve parity with the cost of getting power from the grid in New York state as soon as 2025, in California by 2031 and Texas by 2047. As the RMI notes, those target dates are “well within the 30-year planned economic life of central power plants and transmission infrastructure. Such parity and the customer defections it could trigger would strand those costly utility assets.”

RMI’s estimates are conservative because they were made before the news from Palo Alto last week. Elon Musk, the CEO of the Tesla car company announced that he is investing in a $4 billion to $5 billion “gigafactory” which will double the entire global output of lithium-ion batteries. He says his goal is reduce the price of the batteries by 30 percent in three years and to halve their cost by 2020.

This is the “creative destruction” of capitalism at its best. It will help save the average household in Hawaii tens of thousands of dollars over the life of their rooftop system. It’s the same sort of technological revolution as the cell phone that drove Hawaiian Telcom into bankruptcy or the automobile that killed the buggy whip industry. It is irresistible.

What happens if growing numbers of people go commando, cut the cord, install a PV plus battery storage system and tell HECO to take a hike? Then Hawaiian Electric’s nightmare scenario of fewer and fewer customers shouldering the cost of maintaining the grid becomes a self-fulfilling prophecy. Rates for remaining customers will go up to reflect the fact that fewer of them are sustaining the grid. As rates rise, more will see the economic sense of installing PV plus batteries, resulting in fewer HECO customers to share the costs, causing higher rates for remaining customers, leading more people to cut the cord, causing rates to go up … It’s called a utility death spiral.

Now, there are plenty of people who would be happy to see Hawaiian Electric, with its Soviet-era concept of customer service, go south. But, at least for now, that would not be a good thing. We still need a grid to provide power to high-rise buildings, traffic lights, street lights. If HECO is no longer financially viable because customers are deserting in droves, taxpayers will be forced to pony up the money to keep the grid going. It will become a subsidized municipal utility.

The only way to avoid the death spiral is to compel Hawaiian Electric to invest the funds needed to create a modern grid. Such a grid would allow power to flow both ways. Customers would interconnect and, collectively, would probably become the largest generators of power in the state.

HECO’s business model would no longer rest on being a monopoly power generator. Instead HECO would have to show some agility and initiative. It would have to shrink its workforce and curb it’s exorbitant salaries. It would have to carve out a new business model as a distributor of power.

It could invest in grid-scale storage — say by partnering with the Board of Water Supply to install micro-turbines in water lines and pumping water uphill in the daytime to flow downhill and generate power at night. It could start leasing electric vehicles, or set up battery charging stations, or a chain of on-the-fly battery swapping stations.

There are dozens of things it could do. If it does them early and well it could sell its services as a consultant to other utilities across the nation facing the death spiral.

It would perhaps be humiliating to the corporate executives to accept that they are no longer the power brokers, but there really is no other alternative. That’s one thing that makes this revolution unusual: its leaders are not demanding that the utilities be decapitated. We are trying to save HECO and its power backers in the state from the guillotine, from the consequences of their own shortsightedness.

HB 1943 is a grid modernization bill currently before the Legislature that attempts to push Hawaiian Electric to do the right thing and make it easier, not more difficult, for rooftop solar customers to remain connected to the grid. Please contact your representatives and urge them to support it.

About the author:Anthony Aalto is chairman of the Sierra Club Oahu Group. He has been a foreign correspondent for The Guardian, The Economist, The BBC and most recently Pacific Rim Correspondent for Expresso of Portugal.

About the Author

Anthony Aalto has been a foreign correspondent for The Guardian, The Economist, The BBC and most recently Pacific Rim Correspondent for Expresso of Portugal.
He is currently filming a TV series for Oceanic Time Warner called "My Green Hale - How I built the Greenest House in Hawai‘i". He is Chair of the Sierra Club Capitol Watch and Secretary of the O‘ahu Group.

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